Stocks that can be bought and held forever are those that belong to resilient businesses with the staying power to last for decades. These no-brainer winners are usually not cheap, but there are exceptions. One such exception is Kraft Heinz (NASDAQ: KHC), which is currently down 67% from its high, making it a rare deal.
However, it’s important to note that blue chip stocks like Kraft Heinz do not lose over half their value by accident. The company has faced some serious challenges in recent years. Kraft Heinz emerged from a massive merger between Kraft and Heinz in 2015, which led to a significant amount of debt being added to its balance sheet. This forced the company into emergency cost-cutting mode, resulting in a dividend cut, slashed expenses, and a decline in return on invested capital. Additionally, the lack of innovation caused a decline in sales, further impacting the company’s performance.
Despite these challenges, Kraft Heinz is now on the path to recovery. The company still holds a strong stable of brands that consumers love, such as Capri-Sun, Velveeta, Philadelphia, Kool-Aid, Jell-O, and many more. Kraft Heinz has also made significant progress in paying down its debt and has regained investment-grade credit ratings from corporate rating agencies. Management has focused on investing in new products and increasing efficiency to improve margins, with expectations of organic sales growth and positive unit sales in the near future.
The stock currently offers a dividend yield of 5% at today’s share price, with a healthy dividend payout ratio. If Kraft Heinz continues on its current trajectory, it could provide solid returns for investors. Despite the challenges it has faced, the company’s turnaround story is often overlooked by Wall Street, presenting an opportunity for investors.
Shares of Kraft Heinz are currently trading at a forward P/E of just 10.5, indicating that the stock is undervalued. If the company continues to grow earnings by 5% to 6% annually, investors could see returns of 10% to 11% from growth and dividends alone. However, there is potential for even higher returns if the market begins to award a higher valuation to Kraft Heinz as its performance improves.
While there are no guarantees in the stock market, it could be a mistake to overlook the potential that Kraft Heinz offers. The company has shown signs of improvement and could be a promising investment opportunity for those willing to take a closer look.